Legal Review: Mixed outlook for infrastructure

David Lee finds experts in Scotland's legal sector differ on whether there is a strong pipeline of projects

The Queensferry Crossing, the biggest construction project in Scotland in recent years. Picture: Alistair Linford

When the Queensferry Crossing opened in September, the Red Arrows flew overhead, a flotilla of boats sailed below and the Queen performed the official ceremony – a fitting tribute to the most iconic construction project in recent Scottish history.

However, experts differ on whether there is a strong pipeline of projects. Rod Munro, a projects and infrastructure partner at Macroberts, is upbeat, saying: “It’s been a positive year and I see a pipeline into 2018. There is a perennial need for infrastructure improvement and investment and the Scottish Government understands that it is fundamental to economic growth.

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“As well as recent big building projects in health, education and transport, investment is coming in a range of sectors including digital, energy and low-carbon, plus considerable further investment in rail and roads – for example, the A9.”

Munro says housing will also be a focus. The Scottish Government target to build 50,000 homes in the lifetime of this parliament reflects a “political imperative” based on stresses in the housing market and an earlier lack of investment.

City deals will also drive investment, with the Edinburgh City Region Deal, signed this summer, following those for Glasgow, Aberdeen and Inverness. Funding from the Scottish and UK governments, supported by local authorities, is designed to stimulate infrastructure projects.

“The city deals are going to plough in a lot of money over a long period and hopefully the net result will be considerable additional private sector investment,” says Munro.

Scotland, in contrast to England, has continued to seek and attract private investment into PPP/PFI type structures, notably through the Hub programme, which is delivering a range of facilities including a chunk of the 
£1.25 billion spent on 100-plus 
new schools.

Munro says: “Having worked through accounting issues which affected recent non-profit distributing (NPD) projects, such as the new Sick Kids hospital in Edinburgh, and issues arising from problems at Edinburgh schools, the Scottish Futures Trust (SFT)has adapted established PPP/PFI structures effectively to improve delivery efficiency and reduce costs.

“The Hub programme continues to attract significant private investment and the hope is this continues as a useful tool.”

James Wood-Robertson, a partner with Shoosmiths, is more cautious about the future. 
Wood-Robertson, who was involved in major waste-to-energy projects in Glasgow and the Clyde Valley, agrees that Scotland has detoxified PPP/PFI more effectively than England, adding: “The cloud that hangs over the UK’s PFI sector is significant.

“The first PFI deals lacked some key protections for the public sector, for example provision for sharing refinancing gain. Although later deals covered these gaps, PFI is often seen as synonymous with private sector profit.

“In Scotland, you now have the SFT as a champion and figurehead with the benefit of the NPD model to prevent profits leaking out to the private sector, but margins at contractor level are still attractive enough. In Scotland, there has been innovation in finding solutions; there are intelligent, experienced people at SFT. But SFT will be judged on delivery; are schemes attractive to investors, is there certainty?

“The Hub programme has delivered a good stream of projects and everyone was able to prepare because there were more projects coming over the hill. However, the market is now more uncertain, a bit scrappy, though city region deals might push things along.”

Lawyers are keen to know more about plans for a Scottish National Investment Bank (SNIB). Munro says: “We want to understand what its mandate will be, how it will be capitalised and how it will operate against other active infrastructure funders – will it compete or be an alternative? Could it dampen interest from other financiers?”

Wood-Robertson says: “We need to know how big SNIB is going to be and whether it will be able to borrow to invest... to have an autonomous role and finance projects in its own right. We need to know what type of projects the bank will be mandated to invest in.”

Brexit is also a concern. “Industry players are alive to the reality Brexit poses, including currency risks, availability of finance and labour market issues,” says Munro.

“But any chill to investment would be temporary; if opportunities are presented, the industry will respond. We will get through it.”

Wood-Robertson says: “There is likely to be an absolute decline in funding for projects, from the European Investment Bank and grant funding. The broader picture comes back to the principles of investment, the need for certainty.

“The market reacts surprisingly well to clear bad news but doesn’t respond well to ‘We are still working this out’.”

Briefing: Scotland’s infrastructure, by Drysdale Graham

With the Queensferry Crossing open, the Aberdeen Western Peripheral Route on schedule for a winter 2017-18 completion and the Aberdeen Harbour Expansion Project at Nigg Bay now in construction, what major projects will keep the industry busy over the next few years?

Top of the list are the A9 from Perth to Inverness and the A96 from Inverness to Aberdeen dualling projects, each with a mooted cost of £3 billion.

Transport Scotland is expected to procure advisers this autumn. Next up is the development of an education infrastructure plan, driven by the Scottish Government’s Programme for Government, covering the full spectrum from early years through to college.

Funding of up to £1.5 billion is expected to be provided over several years via the Hub revenue-financed social accommodation programme, with an announcement expected in December’s Budget.

With Brexit putting the kibosh on European Investment Bank finance for the moment, the Scottish Government’s proposed Scottish National Investment Bank may help to plug the funding gap, although it is a lack of a significant pipeline of projects rather than funding that is slowing the industry down.

Other upcoming projects include the new campus for Fife College in Dunfermline and the replacement of Monklands Hospital (the funding route for both still to be determined), the Glasgow Airport Access Project to be financed via Glasgow’s city deal and the extension of Edinburgh’s tram line from York Place to Newhaven.

Drysdale Graham is with Brodies

Briefing: Public sector litigation, by Morag Ross QC

In-house solicitors in public bodies usually have to be nimble. They may be responsible for handling a wide range of external challenges and, at the same time, need to be adept at explaining internally often complex issues, whether that is to a board or to elected members.

For a local authority, for example, litigation can mean a pure private law point in a contract dispute, or a human rights claim, or a challenge to environmental policy, and everything in between. Legal life is not dull.

The area in which the worlds of commercial and public law collide most often and most obviously is probably public procurement.

The fundamental requirements of transparency and equal treatment, which belong squarely in the set of public body obligations, are tested in a setting where commercial interests lead the way.

Sometimes that can result in a culture clash, perhaps especially where settlement is discussed. What might be obviously pragmatic for the commercial litigant might not work for the public body.

However, as experience in public procurement litigation in Scotland has built up over the years, legal versatility and skill have meant that this interesting area of public/private overlap continues to evolve.

At Axiom Advocates, we have established expertise in this area and are happy to assist both in advisory and litigation contexts.

Morag Ross QC is with Axiom Advocates

This article appeared in the Scotsman’s annual legal review 2017

The Scotsman’s annual legal review looks at some of the most active areas of legal practice in Scotland. Informed by comprehensive data published by Chambers and Partners and Legal 500, the articles give exclusive insight into the work of more than 11,000 practising solicitors and over 460 practising advocates.